CPA Liability: A Crisis Of Confidence? Is The Auditor A Watchdog Or A Bloodhound?

Abstract

The recent problems with the financial status of Enron bring to mind when an accountant is liable for his or her work and to whom that liability can be directed. This paper analyzes most causes of action (rights to file a lawsuit) which can be claimed against an accountant. Most liability seems to stem from the auditing functions, but it can flow from a number of other causes as well. While the liability to the client is fairly straight forward, liability to third parties can be more treacherous. Among the legal principles on which liability can attach covered herein are breach of contract, negligence, negligent misrepresentation, intentional misrepresentation, unfair or deceptive trade practices, liability for incorrect tax returns, erroneous business advice, federal and state securities exchange acts, statutes of limitations, policy factors affecting court decisions, and damages.